To bring everyone up to speed, we’re now at our fourth offer in the series. The history:
- JOSB shares were trading below $42 in early October prior to it announcing an initial bid to buy its bigger rival for $2.3 billion, or $48 per share.
- About seven weeks later, Men’s Wearhouse turned the tables and offered to buy JOSB for $1.5 billion or $55 per share.
- That was followed by a $57.50 offer from Men’s Wearhouse in early January.
- Today’s $63.50 per share offer
Complicating matters even further is JOSB’s existing bid to acquire privately held Eddie Bauer for $825 million. Men’s Warehouse says it will pay an additional $1.50 per share to JOSB shareholders if it’s allowed to perform a small amount of due diligence.
At either price, Men’s Wearhouse wants nothing to do with Eddie Bauer, but nonetheless, it has become abundantly clear that MW is desperate to buy Jos. A. Bank.
JOSB and Eddie Bauer
JOSB management says it has been pursuing the lifestyle brand for more than two years. With the moderately priced suit business growing in the low single-digits, it feels an additional growth engine is vital to its future success. The two companies have a very complimentary customer base. Men who shop at Jos. A. Bank for suits likely also shop at Eddie Bauer. In addition, Eddie Bauer has a significant following from women; a combined entity broadens its horizons, not to mention its customer base.
While some would argue that Jos. A. Bank would have been smarter to go after Brooks Brothers, I think the purchase makes a lot of sense if you are committed to the retail mid-market and want to remain independent. Upon completion of the deal, Golden Gate Capital becomes its largest shareholder with 16.6% of JOSB stock.
JOSB gets the growth it needs while obtaining a friendly shareholder. It’s a win/win scenario.
JOSB Stock Repurchases
The other part of the Eddie Bauer deal was the announcement the company would buy back 16.4% of JOSB stock upon completion of its acquisition. Offering $65 per share, the JOSB stock repurchase accomplishes two things: First, it eliminates any acquisition-related dilution and secondly, it establishes a floor price of $65 for JOSB stock.
In addition, because the JOSB/Eddie Bauer tie-up allows it to back out should it receive an unsolicited offer for JOSB stock that’s better than the value created by a merger, it virtually guaranteed a third offer from Men’s Wearhouse.
No one should be surprised by today’s announcement given the terms of the Eddie Bauer deal.
The Future of Jos. A. Bank
Jos. A. Bank’s brilliant chess move described above has set the wheels in motion for a big win for JOSB stock. (And for what it’s worth, it looks like a big win for Men’s Wearhouse; MW stock is up 8% today, too).
Investors on both sides of this battle see the common sense in a merged entity. Together, the two businesses have more than 1,700 stores in Canada and the United States, providing significant cost savings and reach. Where its stores overlap, it can close those locations — saving money while still ensuring it maintains a geographic presence.